Debt crowdfunding initiatives have highest success rates for East Africa’s small businesses, new report says

Debt crowd funding is the most popular form of online capital raising for small businesses in Africa’s clean energy access sector. This is according to a new report, ‘Crowd Power, Success & Failure – The Key to a Winning Campaign’ released by Energy 4 Impact, which works with enterprises to fight energy poverty in Sub-Sahara Africa’s off-grid areas.

Released this month, the report offers current and potential campaign-makers in the off-grid energy space, the tools and knowledge to develop successful crowdfunding crusades. It identifies trends common to successful energy access related campaigns across donation, reward, debt and equity crowdfunding in Sub-Sahara Africa and Asia.

“Debt crowdfunding has a high success rate, but the due diligence process can be lengthy and start-ups must demonstrate that they can service debt,” says Davinia Cogan, co-author of the report and Crowd Power Programme Manager at Energy 4 Impact.

She adds that entrepreneurs must carefully consider the type of crowdfunding that best suits their financing needs and consider if their choice is realistic given their network and where they’re at in the business lifecycle.

“Crowdfunding success is not down to luck – success involves thoughtful preparation and significant resources. For instance, a little over half of equity crowdfunding pitches are successful, so setting a realistic target and valuation, and having quality campaign materials – such as an engaging video – all increase chances of success,” she says.

The report, which is also co-authored by Simon Collings, Director of Learning and Innovation at Energy 4 Impact, further notes that successful donation and reward campaigns are usually conducted by start–ups raising seed funding from their network. This makes it crucial for start-ups to set a realistic target that aligns with their network’s capacity to contribute – as is the outreach strategy and quality of the campaign pitch.

The report also finds that debt campaigns have the highest ‘success rates’ (in terms of percentage of campaigns that meet the campaign target) of any other platform type, and that 100% of energy-access SME loans have been funded by the crowd to date. For perspective, Crowdcube, the leading equity crowdfunding platform globally, had a 52% success rate.

The Crowd Power programme, from which the report shares learnings, has supported over 100 crowdfunding campaigns with around $600,000 in funding via match funding, lump-sum contributions, gift vouchers and partial loan guarantees. Over 250,000 people have gained access to clean energy as a result of the campaigns supported by Crowd Power. Crowd Power is funded by UK Aid.

Other data was obtained through interviews with various social enterprises and non-profits launching campaigns, and through the work that Energy 4 Impact does to support off-grid energy businesses in Kenya, Tanzania, Rwanda, Uganda and Senegal.

In East Africa, Energy 4 Impact has been supporting micro and small enterprises in clean energy sector to raise funding from the public using crowd funding platforms such as M-Changa and Kiva. It is often hard for micro-entrepreneurs operating in the informal economy to access funding. Many such businesses are in still at an early stage of development and require support to access finance to enable them increase uptake of clean energy products such as solar lighting products, charcoal briquettes and more efficient cookstoves that offer solutions to problems of pollution and energy conservation in their local communities.